Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.10C h a i r m a n ’ s

C o l u m n

The Age of a 100-year Life

this pandemic that product lifecycles are becoming shorter.
Considering the turnover of products and even people, it
may be difficult to spend age 20 to 60 with just one periodof education. This new age we are entering may demandthat we re-learn and pivot to a different type of work atsome point.

I recently read the international bestseller “LIFE SHIFT”,
written by London Business School Professor Lynda Grattonand Andrew Scott. Like other nations, we often hear of a
100-year life in Japan. This book gives us hints on how wemight go about our working lives assuming a longer life
expectancy. My takeaway is that life is not a one-time andirreversible process of “learn-work-retire” but dependingon the person, this process can occur numerous times overthe course of one’s life. This may be a reality that comeswith a 100-year life.
Noriyuki Yanagikawa, a professor at University of Tokyo
Graduate School also explains a theoretical retirement atage 40, and the importance of recurrent education insubsequent years. You may have noticed especially during

F i n a n c i a l

4/ 28/ 2022

As an accounting firm, our employees who work in tax andaccounting are often referred as professional accountants.
Regardless of job type, organizational structure, individualor company, as long as economic activities occur, there
will always be a need for tax and accounting work.
In recent years however, the topic of SDGs and ESG has
gained momentum and non-financial disclosures ofenvironmental, social, and corporate governance havebecome just as vital as accounting. Although our primary
services are tax and accounting, we view the provision of
only such services as a business risk. To maintain true
value for our clients, we are constantly looking to raise ourlevel of expertise. Like the afore-mentioned authors
suggest, we will continue to engage in lifelong learning.

(Kazuhiro Matsuzawa, Chairman)

A s s e t s

About Our Services for Financial
AssetsIn Japan, the securitization of financial assets began in themid-90s. Our firm has supported funds for financial assetssince our founding in 1999.
In the first few years in business, most of our work was fornon-bank financial assets, however with the elimination ofgray zone interest rates, SPC assets have changed
dramatically. Currently, the main SPC asset types are:➢ Loans receivable, accounts receivable, and other➢ Financial instruments (stocks, bonds, trust beneficiaryinterests, investment shares)➢ Marine vessels, airplanes, and other movable assets

Financial assets differ from real estate in that they are
non-tangible and investors may want comfort throughconfirming the existence of claims. We offer the following
agreed-upon procedures:➢ Confirmation of existence➢ Confirmation of eligibility criteria for securitization➢ Confirmation of instrument instructions
In recent years, we are receiving more inquiries and are
actively providing assistance for PE funds and those otherthan LPS structures. When using an SPC for fund-raisingand setting up investment products, we are sure we canhelp. More details and latest trends will follow in future
newsletters.
(Toshihiko Hatta, Executive Manager)

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.10J a p a n

R e a l4/ 28/ 2022

E s t a t e

ESG Investments in the Real Estate
Industry
Under its international pledge, Japan’s net zero GHG
emissions goals are set at 46%1 reduction by 2030 and
100% reduction by 2050. However, recent figures2 showthat only a 18% reduction has been achieved, signalingthat a greater effort is needed to reach the 2030 target.
It seems that Japan is now responding to two demands,
namely from investors and the government.

Firstly, with pension funds and institutional investors
leading the way for ESG investments, real estate as analternative asset is being demanded similar ESG
investment requirements as financial assets.
The news of GPIF (government pension fund investment)
starting ESG investments had a big impact on publicly
listed REITs in Japan, and this trend is expected to continue.
Secondly, the Building Energy Conservation Act requires
adherence to energy conservation standards and will be arequirement in building inspections. Existing buildings that
don’t follow such standards may be at risk of becoming
stranded assets unable to recoup their investment, soinvestors must be cautious of tighter government policies

in the future. In the U.K., there are far stringent
regulations that prohibit new leasing of buildings that areenergy inefficient.

When considering future investments, it may be wise tolook beyond short-term economics, and to sufficiently
consider ESG investments from a compliance standpoint toavoid future unexpected losses.
* 1) 2013 comparison 2) 2020 estimation(Shigeru Hirai, Client Relations Group)

S e c u r i t y To k e nO f f e r i n g

Security Token Offering (STO) forReal Estate
An “STO” or security token offering is an issuance of asecurity token based on the system of blockchain and usedin fund-raising. It is defined as “electronic record transferright” under Japanese law.

Structure-wise, there are two types. One is a tokenizedJapanese Depositary Receipt (beneficiary certificate for
entrusted securities), and the other is a tokenized TK
investment share under a GK-TK structure.

Since 2021, STO have been used for setting up numeroussecuritized real estate structures. Investment firms thensell such ownership stakes to individual investors.

Prior to the STO, individuals traditionally invested throughJ-REITs, however with the introduction of structures using
an STO, we may see an influx of individual investors thatinvest in private real estate funds.

Previously setup asset types include residential, office,commercial, logistics, boutique hotels, and others.

(continued on next page)

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting FirmInnovation Speed Quality

Vol.10

4/ 28/ 2022

S e c u r i t y To k e n
O f f e r i n g
STO (continued)
Generally, a real estate STO has benefits over a J-REIT in
the following ways:➢ Investors can gain access to properties not available
under J-REITs.
➢ Ownership stakes are in single properties, so investment
targets are clear.
➢ Not publicly listed, so volatility is low.
However, tax regulation and related laws are still a work inprogress, and the following challenges exist:➢ Under the GK-TK structure, distributions are subject toan overall tax, which differs from treatment for a J-REIT.
➢ For Japanese Depositary Receipts, dividends are nondeductible.
➢ No secondary market, so liquidity is low.
Our firm will continue to update you on tax reforms,
changes in laws, and the latest news. Please reach out to us
for any considerations about setting up an STO structure
and ongoing management.
(Masanori Ikematsu, ASA Advisory)➢ Under the GK-TK structure, protection from third party
claims is difficult to secure when transferring TK
investment shares.

J a p a nTa x

U p d a t eGroup Tax Relief System begins
The consolidated group tax system ended in March andwas replaced by the group tax relief system which started
on April 1, 2022.
First implemented in 2002, the consolidated group tax
system was used to treat the entire group as one reporting
entity for corporate tax filings. By consolidating group
income and losses and using NOLs, the purpose was toreduce tax. However, due to complex tax calculations andadjustments at company levels affecting the entire tax
calculation, many groups did not elect this method due tocumbersome administration. Also, other considerations
including the start date of application, valuation necessary
for parent and subsidiaries at the time of becoming part of
the group, and net losses carried from new groupcompanies were not consistent with the corporate
reorganization tax system, and there was criticism that it
lacked objectivity.
Under the new group tax relief system, while income andlosses are aggregated and NOL available for use within
100% controlled group companies, each company will beregarded as a reporting unit and will each calculate andsubmit tax. The new system is consistent with thecorporate reorganization tax system as well. In order toenjoy the reduced corporate tax rate, the groupcompanies must all be small and medium sized entities,
and the applicable income for each entity will be based
on % of total group income (group income up to 8 million
JPY is applicable at the reduced rate).
Companies should consider the benefits of combining
income and losses and use of NOL for the entire group.
If a company wants to file under this method, as a generalrule they must submit an application form 3 months prior
to the beginning of the first fiscal year of applying thismethod. If a group was previously reporting under theconsolidated group tax system, they will automatically betransferred to the new system.
Not only will group tax be reduced but the parent entity
will be able to assess the subsidiaries’ tax risks. In that
respect, the new system is gaining attention from a
corporate governance standpoint as well.

(Reiko Handa, Tax Group)

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.